The country's former chief economic advisor (CEA) Arvind Subramanian cautioned against early celebrations of economic recovery even as the economy is bouncing back from the big setback experienced the previous year, Business Standard reports. He was speaking at a forum organised by the Indira Gandhi Institute of Development Research. The former CEA stated that recovery is still in progress.
He pointed out that the GDP and the Index for Industrial Production (IIP) continue to be below the pre-pandemic level. The former CEA said that one is mistaken or stands at the risk of being misled by the natural bounce back from the big decline. However, he stated that tax revenues were doing well and that can potentially be an indicator that things may improve, as per the Business Standard report.
“Stock markets reflect the Indian economy less. It would be a kind of policy mistake to infer from this (stock boom) anything about the diverse Indian economy. Twin balance sheet problems (of big and tech companies) may have come down. But other balance sheets are getting stressed, such as those of MSMEs (micro, small and medium enterprises) and consumers," Business Standard quoted the former CEA.
According to the former CEA, the country's economy had already entered a downward trajectory during the pre-COVID period of 2019. He added that this was reflected from various data on investments and consumption. However, he stated that the data only showed a deceleration in economic growth at four per cent. The potential GDP growth rate was four per cent from 2013-14 to 2018-19 rather than seven per cent as per official data.
He suggested that potential GDP growth needs to be seen in the context of what happened between 2013-14 and 2019-20. According to him, a more factual assessment of the period than what official numbers might suggest.
The former CEA mentioned that New Delhi's policy of raising tariffs and not signing international agreements would not help investors to move from China to India. Additionally, this could harm exports. Subramanian pointed out that raising tariffs run the risk of input costs going up as well. According to him, when combined with aversion from international agreements, the two play off against each other. He pointed out that investors were fleeing China because it had become uncompetitive and wages were rising.
Subramanian pointed out that investors were looking for a place that could serve as a launching pad for exports. He pointed out that Indian might be a huge market but investors would not want to come here just for the domestic market.
He mentioned that the production-linked incentive schemes were beneficial mostly to tech and capital-intensive sectors. The former CEA stated that unskilled and labour-intensive growth is imperative to attain inclusive growth in India. He pointed out that this was not the broad thrust of the PLIs.
